When the Savoy hotel reopened last October, 18 months late and £120m over budget, it offered itself to the world as more gilded, more comfortable and more cognisant of its own history than ever before. Opulent new suites were named after cultural giants who had used its beds: Monet, Dietrich, Chaplin, Churchill. A small museum was established on the premises. ITV screened a two-hour advert disguised as a documentary in which Stephen Fry offered a paean to the Savoy's past, and cooed and burbled over the newly polished surfaces calculated to secure its future.

It is the job of a grand hotel to insulate its patrons from the world beyond its doors, from the discontent of its employees and from the unhappiness of fellow guests. But it must also protect the clientele from its own history, its own ghosts. Which is why, as the Savoy's current owner Prince al-Waleed bin Talal declared his property "a gift to the British monarchy and the British people", nobody talked about the afternoon in the summer of 1940 when the Italian waiters were marched from the restaurant and the grill room and penned behind internment-camp barbed wire. Neither did they mention the night in September that same year, when the air-raid shelter was occupied by a group of Communists from the East End who declared that while their communities burned, "the Savoy Hotel parasites" slept soundly in the reinforced basement. Nor was there any talk of a similar incursion that took place a few months later when protestors, disgusted by the hotel's ability to keep guests supplied with treats, disguised themselves as lunching ladies and ripped off their fur coats to reveal banners that read: "Ration the Rich!" And as for the moment just after the war when the access road behind the hotel was blocked by strikers shouting "Fuck the police!" – well, let's just say the event is unlikely to be depicted on a souvenir tea towel.

The Savoy of this period, like London's other grand hotels, was a locus of powerful resentment: a building that symbolised the tenacity of privilege during wartime. There was even a word that went with it – Ritzkrieg – the campaign through which rich Londoners protected their perks and pleasures. But it was also possible to see it as the site of a peculiarly British form of resistance – a place in which quickstepping and drinking pink gin became a patriotic activity; where socialites bibbed for England to demonstrate that Hitler was not sufficiently powerful to disrupt the rituals of cocktail hour. The grand hotels were sensible places to make such a stand. The Dorchester reminded wartime guests that it was, at the skeletal level, a mesh of thick metal cables sunk into a raft of reinforced concrete. The Ritz ballyhooed the fact that its Belle Epoch curlicues concealed steel girders worthy of an American skyscraper. (They neglected to mention that the steel was German.) And under this somewhat illusory impression of safety, the statesmen, spooks and five-star refugees checked in. The Savoy, the Dorchester, the Ritz, Claridge's: each one became a kind of Casablanca.

The exiled King Zog and Queen Geraldine of the Albanians occupied an entire floor of the Ritz, where gossip declared that they paid their bills in bullion that had once constituted the gold reserves of their nation. Most other itinerant European monarchs settled at Claridge's. King George of Greece signed in as "Mr Brown" and fooled nobody. Queen Wilhelmina of the Netherlands, imported from Holland on the deck of a British destroyer, startled fellow guests by descending the grand staircase in a flannel dressing gown, followed by a phalanx of black-clad ladies-in-waiting. Her son-in-law, Prince Bernhard, caused more genuine alarm when he attempted to enforce the blackout by firing a Tommy gun at a light burning brightly in a nearby penthouse.

At the Savoy, journalists filed articles from makeshift offices carved from the carcasses of once-expensive suites. Con artists and swindlers, invigorated by the opportunities brought by war, hunted for victims among the potted palms. Illegal abortionists, profiting from the wartime increase in unwanted pregnancies, conducted their business behind locked hotel-room doors. Spies and spymasters made the grand hotels into thriving centres of espionage, using quiet suites for debriefings and interrogations and picking at the plasterwork for hidden microphones. MI5 booked a suspected Nazi double agent called Stella Lonsdale into a room at the Waldorf, and waited for her to crack. Guy Burgess installed a pair of spies at the Dorchester, one a painfully handsome 19-year-old with 10 targets on his watch list – mainly homosexual Magyars (Hungarians) who were charmed by his unfingermarked good looks. "The whole place," shuddered the head of Special Branch, "is crawling with foreigners."

The photographer Cecil Beaton made a gleefully snobbish inventory of the Dorchester's inhabitants: "Cabinet ministers and their self-consciously respectable wives; hatchet-jawed, iron-grey brigadiers; calf-like airmen off duty; tarts on duty; actresses (also); déclassé society people; cheap musicians and motor-car agents." At the front of the hotel, General Eisenhower plotted the progress of the war behind a concrete barrier installed for his protection. Beneath the hotel, the foreign secretary Edward Halifax slept beside his wife and his mistress in the Turkish bath – not realising that the chamber projected out from the main body of the hotel and was therefore one of the most vulnerable spots in the building. At the back, the prostitutes known collectively as the Hyde Park Rangers warmed themselves on an air vent they nicknamed "the hotplate". And in the ballroom uniformed men and women moved to the dreamy, intoxicating music of Lew Stone's dance band, which incorporated the rhythms of the bombing into their performance. When they heard the first blast of a six-stick incendiary, they took it as their cue to strike up the Anvil Chorus from Il Travatore, allowing the Lutfwaffe to provide every alternate note.

This world now seems impossibly distant. But when Britain feels divided and unequal, London's grand hotels can still provide a concrete symbol of the social and economic differences between us. In March this year, student protestors bombarded the Ritz with paint and smoke-bombs, and hefted an uprooted road sign through one of the plate-glass windows. The following day, the front page of the Mail on Sunday captured the attack in a word: "Ritzkrieg". Same battlefield, different battle.

A corner of Yugoslavia

Special delivery: Queen Alexandra and King Peter II introduce Prince Alexander of Yugoslavia, born in Suite 212 at Claridge’s Photograph: Popperfoto/Getty Images

On 17 July 1945, in a room at Claridge's hotel, the rules of cartography went into abeyance. England receded to the four walls of suite 212 and Yugoslavia – a country that has since disappeared from the map – rushed to fill the space. On a bed borrowed from the London Clinic, a 24 year-old woman lay in the agonies of labour – and as far as she, her husband and Winston Churchill were concerned, the baby who was born that day, Crown Prince Alexander of Yugoslavia, took his first breath on Yugoslav territory. Just to make sure, there was a box of earth under the bed.

The baby's parents, Queen Alexandra and King Peter II of Yugoslavia, had much in common when they met at a dance at the Grosvenor House hotel in 1941. They were both barely out of their teens. They were both political exiles. They had both lost fathers in unusual circumstances. (Peter's father was gunned down by an assassin who jumped on to the running boards of his car; Alexandra's died of blood poisoning after being bitten by a monkey.) The marriage was opposed by factions within the Yugoslav government-in-exile, by the British Foreign Office and by Peter's mother, Queen Marie of Yugoslavia – an Eton-cropped matriarch who spent the war trolling about with her paid companion, Rosemary Creswell, in a self-designed khaki uniform complete with revolver slung in a Sam Browne holster. Peter and Alexandra went to war with all of them, holing up in Claridge's in such a state of hysteria that both were given sedative injections. None of this helped to persuade the British government that Peter was a suitable figure to lead a postwar Yugoslavia. They did their deal instead with Josip Tito. Today, Crown Prince Alexander lives in the palace in Belgrade from which his father fled in 1941. His parents, however, never returned to Yugoslavia. When they left that phantom version of their country conjured in Suite 212, they left for good.

Hunting fascists at the Savoy

In peacetime, Loreto Santarelli was celebrated as the "best known and most popular restaurant manager in Europe". He knew how to put his diners at ease. When the Maharajah of Rajpipla wired the Savoy to book a table for a party of 100, Santarelli procured an Indian elephant in purple-and-cream garlands, and received a diamond-studded cigarette case in return. It was Regulation 18B – under which Britons of Italian background were reclassified as Enemy Aliens – which put a stop to all that.

MI5 had been keeping Santarelli under observation since December 1935, when an informer identified him as the head of a Fascist cell in London, "who would form a good nucleus for anything the Duce might require". It was bad intelligence, but it scarcely mattered. In July 1940 he and the rest of his Italian colleagues were removed from the Savoy and despatched to the winter quarters of the Bertram Mills circus in Berkshire, freshly refitted as an internment camp with Bren guns and a double girdle of barbed wire. The Savoy and its diners lobbied for Santarelli's release. ("At one time," Sir Guy Hambling told the Home Office, "he discussed with me the advisability of purchasing from me one or two pedigree Tamworth pigs, as I happen to breed them. I only give this as a small example of how British his outlook was.") Santarelli was eventually released on medical grounds. "With regard to his mental condition the change is very great," his doctor reported. "If he remains in confinement at the Camp… he will become a complete nervous and physical wreck and likely to be certifiable."

His return to the Savoy, however, was no triumph: his hands trembled as he poured the coffee; Mr Webber in the accounts department campaigned to prevent his re-employment. Webber did not have to wait long to see the back of him. Santarelli's profession was dignity, and he had been robbed of his. Hugh Wontner, the hotel's managing director, formed his own conclusions. "He became distorted," he reflected. "He died a dejected man." That death, of a heart attack, occurred on 11 October 1944. Naturally, it happened at the Savoy.

A sex-mad traitor at the Waldorf

The men from MI5 knew the woman at the Waldorf was a liar. What they couldn't decide was whether she was also a Nazi spy. The story she told was certainly a wild one – the sort that prompted more questions than it satisfied. Had she really married a Russian prince in Monte Carlo? Had she really risked her life to help the network of British agents in Vichy France? Had the mark on her forehead really been made by the hot cigarette of a raging Nazi interrogator? Did she want to parachute back into France in order to aid the Allied cause – or to return to the bed of a lover in the German intelligence agency, where she could tell him all she had discovered about a new British aerial torpedo? Nobody, it seems, could be entirely sure about Stella Lonsdale.

When she arrived in London in the winter of 1941, her interrogators put her up at the Waldorf and spent hours trying to detect the faults in her story. But she had one weapon against which they were powerless. "Mrs Lonsdale's conversation cannot be submitted in a report owing to its indescribably filthy nature." The officer assigned to her case from B1A, the counter-intelligence division of MI5, recorded: "She is without any doubt at all a woman whose loose living would make her an object of shame on any farm-yard." Another snoop reported: "Her mind is – simply and frankly – a cesspool. Without going into details, she held forth for 40 minutes on the difference in love-making of a Frenchman and an Englishman. On another day she expatiated on the theme of animals. She apparently knows not the meaning of decency or reticence. She is sex-fanatical." This, it seems, was a form of fanaticism that the spooks found impossible to combat.

The pink sink beneath the Ritz

The Ritz beneath the Ritz is no longer part of the hotel. It's a casino owned by an entirely different company, where red-eyed oligarchs hunker all night over the blackjack tables. In the war years, however, it was "the Pink Sink", a hub of the homosexual geography of wartime London. When the poet Louis MacNeice visited the place in 1940, he registered its unusual atmosphere. "The bar," he noted, "is noisy and crowded with officers in uniform, but all of a peculiar kind, shimmying their hips and speaking in shrill or velvety voices – 'My dear! My dear! My DEAR!'"

Among these subterraneans was a War Office high-up whose mania for meeting presentable second lieutenants earned him the nickname "Colonel Cutie" and Edomie Johnson, a gifted shoplifter who was known in the Lower Bar as "Sod Johnson, the buggers' Vera Lynn". Gilbert Bradley, a young BBC studio assistant, was also a Lower Bar regular, and recalled being picked up there by Sir Paul Latham, a Conservative MP who, in 1941, was found guilty of 12 charges of "disgraceful conduct" towards three gunners in his own regiment. Latham attempted to draw a line under the matter by mounting an army motorcycle and riding it into a tree – which obliged the court martial to find him guilty of attempted suicide. "In evidence," noted the Times, "it was stated that Sir Paul had an artificial leg and that, although he had ridden this particular motor-cycle before, he would have difficulty in controlling it and applying the foot brake." Gilbert Bradley bought the Times that day. "I was surprised to read about that false leg," he told me. "I'm not sure how I failed to notice it."

The West End Front: The Wartime Secrets of London's Grand Hotels by Matthew Sweet is published by Faber at £20. To order a copy for £16 with free UK p&p, go to guardian.co.uk/bookshop or call 0330 333 6846